9. Potential Misunderstandings

In today's politico-economic minefield some may discard the
concept of community currencies because of some simple
misunderstandings. I address two such issues coming from different
parts of the political spectrum.

Is a Community Currency Just Another Welfare System?

To many people, anything that helps the poor is a welfare
system. (note 11)
While that is indeed the case in most programs,
community currencies are an exception.

Let us consider a practical example from a city that, by
American standards, would be considered an extreme case of
poverty. It will show that a community currency does indeed
help the poor--but by using market forces, not any transfer of
resources from the rich to the poor. In fact, it makes some
welfare systems unnecessary because it puts the poor to work to
help themselves.

When Jaime Lerner became mayor of the medium-sized
Brazilian town of Curitiba in 1973, he had a tricky garbage collection problem. The majority of the 500,000 people of Curitiba
lived in shanty towns (favelas), which had been built so haphazardly
that even the garbage trucks could not get into them. The
accumulation of garbage attracted rodents, which in turn spread
diseases at alarming rates. The classical solution would have been
a welfare program to try to clean up the mess, but Lerner did not
have that option because there were too few rich people in
Curitiba, and the necessary funds were not available.

The mayor was forced to invent another way. His solution
was to pay public transport tokens to people for their garbage,
under the condition that they pre-sort and deposit it in recycling
bins around the favelas. For organic waste, which was composted
for use by farmers as fertilizer, people received chits that could
be exchanged for food. The program worked spectacularly: the
favelas were clean-picked by the kids, who quickly learned to
distinguish between the different types of recyclable products.
People could leave the favelas by public transport and travel to
the center of town where the jobs were. The additional buses
and gasoline were paid for with the proceeds from the sale of the
pre-sorted garbage to the glass, paper, and metal manufacturing
companies. Even "normal" money was saved because fewer
trucks and less gasoline were required to pick up the pre-sorted
garbage. And all this does not even include the savings due to
reduced disease and a more efficient labor market. Today, Curitiba
is clean, prosperous, self-sufficient, and the only Brazilian city I
know to refuse money from the state. It has a state-of-the-art
public transportation system and a popular mayor who has been
repeatedly reelected. Perhaps most significant, a strong sense of
community and pride has arisen in a place where none was
visible before.

There is a general lesson here that politicians from every
country should become acquainted with: welfare programs can
be replaced by imagination and creativity if the right leadership
is available. Also, politicians get reelected for providing such
leadership.

Won't This New Money Create Inflation?

A common reaction to the concept of a local currency is that it
will increase the money supply and therefore fuel inflation. This
reaction is further reinforced by the observation that the built-in
incentive to get rid of a booster or demurrage currency reflects
behavior observed in an inflationary environment.
What happens beyond these first impressions?

Consider the issue of increased money supply: Do airline
frequent flyer programs increase total airline flying? The
answer is obviously yes. But does a frequent flyer ticket create
inflationary pressures on air fares? The answer is no, because
the airline will readjust as needed the constraints on frequent
flyer usage (by, for example, having frequent flyer seats available
only on weekends or in off seasons, or only for red eye
flights, or only for a certain percentage of the seats). In other
words, the airlines will ensure that only otherwise empty seats
will be used by frequent flyers.

The same is true for community currencies: their natural niche
is linking unused resources to otherwise unmet needs. The more
sophisticated community currencies even specifically target this
application. The local businesses participating in the
Commonweal experiment in Minneapolis accept the community currency
only for otherwise unused resources, as when, for example, a
restaurant accepts community currency from early diners. Even
the quantity of local currency issued is only 75 percent of the
discounts of goods or services made available to the system by
participating merchants. So long as community currencies are
issued specifically to ensure the use of otherwise idle resources,
inflationary pressures cannot be generated.

In summary, while the behavior patterns generated by the
booster concept may look similar to what is observed under inflation,
the cause is different. More importantly, the consequences
of spending are diametrically opposed: Under hyperinflation,
society collapses, while with community currencies the fabric
of society is reinforced.

It is important to realize that "normal" national currencies
and community currencies play different roles. Nonetheless,
theory and practice show that it is possible to design a truly symbiotic
relationship between them. This will be the subject of another article.

10. Conclusions

Community currency is a tool for tackling the major contemporary
issues of unemployment, community breakdown, and ecological
destruction. This tool represents some (very) old wine
that could play a broader role if served in the new bottles that
today's technologies make available.

Is this community currency phenomenon a short-term fad
that will disappear when the global economies pick up again, or
is something more significant going on? In support of the thesis
that this is only a temporary fix, one can point out that its
reappearance today corresponds with the long economic cycle termed
the Kondratieff Wave. Indeed, as I pointed out earlier, U.S.
"emergency currencies" have appeared with the regularity of
clockwork in the 1830s, 1890s, 1930s, and now. But I would
nevertheless argue that--unless govemments decide to snuff them out
for the wrong reasons--the community currencies we see today
are only the beginning of a significant new long-term trend.

My claim is based on the observation that the current cycle
is structurally different from all the previous ones. One of the
most compelling explanations for the origins of the Kondratieff
Wave has focused on the fundamental shifts in technology that
have worked their way through the entire productive system. At
intervals of about every fifty to sixty years, we have seen the
"water technology" of the 1830s be followed by the steam engine in
the 1880s, the internal combustion engine in the 1930s,
and the microchip in the 1980s. But the information age is creat-
ing a situation without historical precedent: jobless growth, or
economic production growth, accompanied by worsening individual
conditions. The scales of ecological and community breakdown are
similarly without historical precedent. Since the centralized tools
for stemming this phenomenon have failed, the local community is the most
logical place to do something about
it. As I have attempted to show, community currencies have a
proven track record for solving problems for which we have no
other tools of equivalent simplicity and effectiveness.

It is ironic that we find ourselves again in quandaries similar
to our predecessors of the 1930s. Most of the advantages described
here for letting people help themselves applied at that
time as well. We will never know for sure whether Hitler would
have been propelled to power if the people of Germany had been
allowed to continue to solve their problems from the ground up
and find employment and dignity in their own communities.